Domestic Funds Offer Gateway to Foreign Equities Amid Investment Curbs

Amid ongoing investment restrictions impacting international mutual funds, a cohort of domestic funds continues to offer Indian investors exposure to foreign equities. While direct international fund inflows remain constrained by regulatory overseas limits, 15 equity and hybrid schemes domiciled in India have allocated portions of their portfolios to global stocks. This development provides a workaround for investors seeking geographical diversification and access to international market returns, particularly from sectors or companies not readily available in the Indian market. Two of these domestic funds exhibit significant foreign equity exposure, with allocations exceeding 26% of their total assets. This strategy allows fund managers to leverage their existing mandates and investment avenues to invest in foreign securities, circumventing the direct restrictions placed on international feeder funds. The restriction on international fund investments, largely attributed to the Reserve Bank of India's (RBI) $7 billion limit for overseas investments by mutual funds, has been a persistent theme for over a year. Consequently, investors have been looking for alternative routes to gain global exposure. The identified domestic funds present a viable option, maintaining a crucial link to global markets for retail and institutional investors alike, albeit through an indirect mechanism. The continued existence and utilization of these avenues underscore the sustained investor demand for international diversification despite regulatory headwinds.